Liechtenstein transfer pricing laws align with the Guidelines set by the Organization for Economic Co-operation and Development (OECD). They are incorporated in the Tax Act and Tax Ordinance.
Arm’s Length Principle
In Liechtenstein, the arm’s length principle is based on the OECD Transfer Pricing Guidelines (TPG). Taxpayers must use the latest OECD TPG to settle transfer prices for transactions with related parties and permanent establishments, ensuring the prices match those that would be agreed between independent parties.
Related Party Definition
Liechtenstein’s Tax Ordinance defines related parties as people or companies who have a stake in the taxpayer or benefit from them, either now or in the future, as well as those in whom the taxpayer has an interest or from whom the taxpayer benefits. It also includes the taxpayer’s managers, family members, close friends, and individuals closely connected to any of these groups. For transfer pricing purposes, documentation is required for transactions with related parties if they hold or benefit from at least 25%.
Transfer Pricing Methods
The methods that can be used to determine the arm’s length price are:
- Comparable Uncontrolled Price Method
- Resale Price Method
- Cost Plus Method
- Transactional Net Margin Method
- Profit Split Method
Liechtenstein follows the OECD’s recommended transfer pricing methods and the selection of the method is based on the most appropriate principle. If any of the above standard methods don’t reflect the arm’s length principle, the tax authority will accept any other suitable method.
Comparability Analysis
Liechtenstein follows the OECD Transfer Pricing Guidelines (TPG), including the guidance on comparability analysis in Chapter III of the TPG. This means that the tax administration assesses transfer pricing using the same approach as outlined by the OECD, making sure that prices for transactions between related companies are consistent with what independent companies would agree to under similar circumstances. Liechtenstein does not prefer domestic comparables over foreign comparables and does not use secret comparables. The legislation also allows the use of statistical methods, such as interquartile ranges, to determine arm’s length pricing and requires comparability adjustments when needed.
Documentation Requirements
Transfer pricing documentation requirements in Liechtenstein are based on the three-tiered approach set forth by the OECD. This requires multinational groups to submit the following documentation to the tax authorities.
Master File;
Local File, and
Country-by-Country (CbC) report.
Master and Local Files
Under Article 31b of Liechtenstein’s Tax Ordinance, companies that are not part of a group with over 900 million francs in turnover but have more than 250 employees, over 25.9 million francs in assets, and over 51.8 million francs in revenue must keep documentation proving their transfer pricing is appropriate if their transactions with related parties or permanent establishments exceed 500,000 francs for goods or 125,000 francs per payment type. This documentation must include details about the company, its business model, structure, related-party dealings, risk and function allocation, and how transfer prices were set. From 2018 onwards, companies in a group with a turnover exceeding 900 million francs must prepare both a master file and a local file under OECD rules, if their transactions exceed 1 million francs for goods or 250,000 francs for other payments. The related party must have at least a 25% interest or benefit. All documentation must be in German or English and submitted within 60 days if requested. Even smaller companies must still be able to show their pricing follows the arm’s length principle. Penalties for non-compliance range from up to 1,000 francs to 20,000 francs in serious or repeated cases.
Country-by-Country Reporting
Country-by-country (CbC) reporting in Liechtenstein applies to multinational groups with over 900 million francs in total revenue. These groups must file a CbC report in German or English within 12 months after the fiscal year ends. The report includes key financial data for each country, like income, taxes, employees, and assets. Usually, the parent company files the report, but another group company (a surrogate) can do it if certain conditions are met, such as if it’s in a country that also requires CbC reporting and has an agreement with Liechtenstein to share reports. If the parent is abroad and doesn’t file, a Liechtenstein group company may have to file the report instead.
Advance Pricing Agreements (APA) and Mutual Agreement Program (MAP)
Advance tax rulings in Liechtenstein can be obtained through negotiation, but the tax authority is unlikely to negotiate directly with foreign tax authorities, although the taxpayer may do so. Since 2018, Liechtenstein has required the automatic sharing of certain tax rulings with other countries, in line with OECD BEPS Action 5. Shared rulings include those involving preferential arrangements, cross-border transfer pricing, profit reductions not shown in financial statements, permanent establishment issues, and the routing of income across borders through group entities.
Mutual Agreement Program (MAP)
Liechtenstein allows taxpayers to use the Mutual Agreement Procedure (MAP) to resolve tax disputes under its tax treaties, including those involving transfer pricing, double taxation, and permanent establishments. MAP can be requested even if the issue has already been addressed through local courts or tax procedures. Taxpayers can also ask for multi-year solutions and apply for MAP regardless of other legal remedies. There are no fees for filing a MAP request, and most treaties include provisions for corresponding adjustments. Although timelines may depend on the treaty, MAP agreements are generally implemented even if domestic time limits have passed.
Approach to Transfer Pricing Audits
In Liechtenstein, transfer pricing audits are conducted by the tax authority to ensure that transactions between related parties adhere to the arm’s length principle, as outlined in the OECD Transfer Pricing Guidelines. Taxpayers are required to prepare appropriate documentation, including master and local files, especially if they are part of a multinational group with significant cross-border transactions. The tax authority may request this documentation within 60 days and can review transactions during audits.
Penalties
In Liechtenstein, penalties are carried out if a taxpayer doesn’t admire the guidelines special within the Tax Act or the Tax Ordinance. For instance, if the taxpayer does no longer sign up as a reporting entity or misses the submitting cut-off date, it is able to face a first-rate of up to 250,000 Swiss francs. In the case such failure is because of negligence, the penalty can move up to 100,000 francs. Additionally, if the company does not provide facts or hinders an inspection, it may be fined up to 20,000 francs. Other sorts of non-compliance also can bring about fines of as much as 5,000 francs.
Taxation at a Glance
Liechtenstein has a modern tax system. Corporate and indirect taxes are uniform across the country. Although Liechtenstein does not follow a case-law system, decisions by the Supreme Court can influence tax authority rulings. The country shares a close economic relationship with Switzerland, including a joint VAT system and the application of some Swiss stamp duties. Its economy is mainly driven by industry and financial services, supported by clear tax regulations and guidance from tax authorities through ordinances, newsletters, and directives.
The currency of Liechtenstein is the Swiss Franc.
The official name of the Liechtenstein tax authority is the National Administration
The table below provides a summary of the main taxation rates related to businesses:
Tax Type | Tax Rate |
Corporate Tax | 12.5% |
VAT | 8.1% |
Withholding tax on dividends to non-residents | 0% |
Withholding tax on interest to non-residents | 0% |
Withholding tax on royalties to non-residents | 0% |
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